The first cost of grading and spreading gravel on a short rural road is expected to be $700,000. The road will have to be maintained at a cost of $25,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off-road vehicles. This improved accessibility has increased the property values along the road from $400,000 to $600,000. The conventional B/C ratio at an interest rate of 6% per year for a 10-year study period is closest to: (choose one)
(a) 1.3
(b) 1.7
(c) 2.1
(d) 2.8
B/C = (600,000 – 400,000)/[700,000(A/P,6%,10) + 25,000]
= 200,000/[700,000(0.13587) + 25,000]
= 1.67
Answer is (b) 1.7
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